BBVA Compass reports third quarter results

BBVA Compass Bancshares, Inc., a Sunbelt-based bank holding company (BBVA Compass), reported today net income of $130 million for the third quarter of 2017, an 8 percent increase from the $120 million earned during the third quarter of 2016. Included in third quarter 2017 results is approximately $60 million (pre-tax) of provision expense related to Hurricanes Harvey and Irma. Return on average assets and return on average tangible equity(1) for the third quarter of 2017 were 0.59 percent and 6.40 percent, respectively.

Net income for the first nine months of 2017 totaled $409 million, an increase of 45 percent from the $282 million earned during the first nine months of 2016. Return on average assets and return on average tangible equity(1) for the first nine months of 2017 were 0.62 percent and 6.87 percent, respectively.

Operating income: Recurring revenues continued their upward trend, growing 4.2% between January and September. This, together with cost containment efforts (expenses dropped 1.7% in the year to September), drove operating income to a record €9.52 billion

Risks: The NPL ratio continued to improve, reaching 4.5% in September (vs. 4.8% in June), the lowest level in the past five years. Coverage increased to 72%

Capital: The fully-loaded CET1 ratio rose to 11.2% in September, reflecting a capital generation of 30 basis points in the first nine months of the year

Transformation: The digital customer base grew 24% y-o-y to 21.1 million in September. Of these, the number of customers banking with their smartphones surged 43% to 15.8 million

“Our ability to deliver another solid quarter while navigating the devastating impact of not one but two hurricanes is a testament to the strength and resiliency of the team we’ve built at BBVA Compass,” said Onur Genç, president and CEO of BBVA Compass. “While the safety and well-being of everyone impacted, including many of our own employees, was our top priority, we also recognized the need for our customers to have access to their banking accounts and the emphasis we’ve placed on building robust digital capabilities was certainly helpful during this time. Our attention now is focused on the recovery process and both BBVA Compass and our parent company, BBVA, have committed help in supporting these efforts.”

“Overall, results for the quarter and the underlying trends were very positive,” Genç noted. “Revenue growth was solid, particularly with respect to net interest income, while higher investment banking activity drove fee income growth from second quarter levels. While we did incur higher provision expense as a result of the hurricanes, underlying trends in our loan portfolio resulted in a significant improvement in many of our key credit quality measures. Increasing activity and building momentum for next year is our primary focus as we head into the final quarter of 2017.”

“The increase in net interest income certainly reflects the benefit of higher short-term interest rates and the interest rate sensitive position of our balance sheet, which positively impacted earning asset yields, particularly loan yields,” Genç noted. “At the same time, it also reflects our continued efforts focused on prudently managing spreads and maintaining a disciplined deposit pricing strategy.”

Total revenue for the quarter was $844 million, an increase of 8 percent from third quarter 2016 levels and an increase of $12 million or 6 percent (annualized) on a linked-quarter basis with the second quarter of 2017. Revenue growth was driven by an increase in net interest income. Net interest income totaled $589 million, an increase of $75 million or 14 percent from the third quarter of 2016. The percent net interest margin in the third quarter was 3.13 percent, up 51 basis points from the third quarter of 2016. On a year-to-date basis, the percent net interest margin was 3.07 percent, an increase of 47 basis points compared to the same timeframe a year ago.

Noninterest income for the quarter totaled $255 million, a decrease of 3 percent compared to the $264 million recorded in the third quarter of 2016. Positive performances in asset management fees, service charges on deposit accounts, and card and merchant processing fees were offset by more interest rate and market sensitive fee-based businesses. Conversely, on a linked quarter basis noninterest income was up 14 percent (annualized) primarily as a result of strong performance in investment banking and advisory fees.

Noninterest expense totaled $574 million, an increase of 3 percent compared to the year ago quarter. Included in noninterest expense in the third quarter of 2017 is approximately $4 million of expenses associated with Hurricanes Harvey and Irma related to property damage not covered by insurance and relief efforts and commitments made to employees and charitable organizations. Overall expense growth has been well-contained and on a year-to-date percentage basis is flat compared to the same period a year ago.

Genç: Particularly encouraging this quarter has been the results of our Express Personal Loan product, an uncollateralized consumer loan that is designed to provide same day approval and funding when applied for on-line.

“While overall balance sheet growth has been somewhat muted given our focus on managing spreads and optimizing capital consumption, our loan pipeline is strong,” Genç noted. “During the first nine months we funded $12.5 billion of customer loans, an increase of 13 percent compared to the same time last year. Particularly encouraging this quarter has been the results of our Express Personal Loan product, an uncollateralized consumer loan that is designed to provide same day approval and funding when applied for on-line. We believe the success of this product provides us a roadmap that has proven to work in the digital space.”

Average total loans for the third quarter of 2017 were $60.3 billion, a 2 percent (annualized) increase on a linked quarter basis and a 1 percent decrease from the third quarter of 2016. During the third quarter, approximately $5 billion of customer loans were funded, a 46 percent increase from the third quarter a year ago. Average total deposits for the quarter decreased 4 percent to $65.6 billion, primarily as a result of a decrease in higher rate deposits. At the same time, average noninterest bearing demand deposits increased 2 percent and now represents 32 percent of average total deposits.

Notwithstanding the additional provision expense associated with the hurricanes, key credit quality indicators continued to improve, repeating the trend of the past several quarters. Nonperforming loans totaled $711 million at the end of the quarter, a decrease of $110 million compared to second quarter 2017 and $272 million since the end of the fourth quarter of 2016. Nonperforming loans in the company’s primarily reserved-based energy portfolio continued to decline, dropping $37 million during the quarter. Nonperforming loans as a percentage of total loans were 1.18 percent, down from 1.37 percent at the end of the second quarter of 2017 and 1.63 percent at year-end 2016. Net charge-offs as a percentage of average loans totaled 47 basis points in the quarter compared to 42 basis points in the second quarter of 2017. The allowance for loan losses as a percentage of total loans ended the quarter at 1.41 percent while the coverage ratio of nonperforming loans stood at 119 percent.

Total shareholder’s equity at the end of the third quarter totaled $13.1 billion, a 2 percent increase from $12.8 billion at the end of the third quarter of 2016. The CET1 ratio rose to 12.07 percent (2) at the end of the third quarter of 2017, up 58 basis points from the end of the fourth quarter of 2016 and 79 basis points from the end of the third quarter of 2016.

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1 Operating income and average tangible equity are non-GAAP financial measures that we believe aid in understanding certain areas of our performance. The calculation of these measures is included on the page titled Non-GAAP Reconciliation.

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